Thinking about getting involved with a franchise? You’ll be in good company using this rapid-growth business model. Consider there are 792,000 franchise units in America as of November 2022. And they employ almost 8.5 million workers.
Read on to find out about the franchise relationship contract. And other important aspects that deal with this business format.
What is a Franchise Business?
A franchise involves two entities. The person who puts together the trade name, brand and business formula. And the other part of the franchise system pays fees, royalties and needs franchisor licenses.
These independent small business entrepreneurs get to use the products, logo, and business name of the larger company.
- READ MORE: See our Franchise Guide
What Are the 5 Types of Franchise?
There are different types of franchise models. Everything from professional services companies to retail outlets and fast food franchise businesses is included.
Here are five types that you can sort through.
Job Franchise
These are low-investment franchises. The staff is small and you’ll need to invest money in equipment and sometimes a vehicle. Examples include event planning and cleaning services.
Product Franchise
Vending machines and bicycles are two examples of a product franchise. In this type of business, the franchisee distributes related services and the franchisor’s products.
Business Format Franchise
Are you interested in one of these types of franchises? With one of these, you operate using the parent company’s trademark or brand. You’ll also get to use their proprietary systems.
Examples of business format franchises include fast food restaurants, fitness centers, and retail stores. It can also be called a management franchise if the products are B2B.
Investment Franchise
This type of franchise is large-scale. It requires a management team and a huge capital investment. Think hotels.
Conversion Franchise
This one is different from the other types of franchises. It offers a shortcut to business development by entering into a special relationship with an existing company. Plumbing services are a good example of conversion franchising. Other examples include a real estate service and an HVAC company.
Why You Should Start a Jobs Franchise Business
Different types of franchising all lead to the same end. You run your own business. If you get successful enough you can run more than one unit.
There’s usually a franchise fee and some other costs for things like advertising programs. But in the end, the franchise industry is a lucrative place to apply your business-related skills. In many cases, you get to tap into the franchisor’s strategy to maximize your market share.
Here are some other reasons it’s a good idea to pay fees and get started in the franchise world.
Keep in mind the relationship models between the franchisor and franchisee can be simple. Make sure it is transparent and has a periodic evaluation. Both of the parties involved need to see value on an ongoing basis. There needs to be clear room for growth inside the model the franchisor and the franchisee are working with. Looking for ways to increase procurement savings for both can make the relationship better.
Benefits of Starting a Product Franchising Business
These product distribution franchising businesses make up the biggest number of total retail sales in America. Remember there’s a lower risk with a product distribution franchise than if you start up your own business from scratch.
You could even get involved with the Ford company, but a franchise can cost over $150K.
You get a lot of perks from the parent company pointed to a woman-owned brand or her business. Like the right to use the franchisor’s brand. This product distribution franchise method is popular. Coca-Cola is a big example. With a franchise this big it’s good to have good supplier-dealer relationships and previous managing experience. That makes franchisee management simpler. Especially when you can tap into a proven training system.
Reasons to Start a Business Format Franchising Company
Business format franchises make things simple. That’s a big advantage since you get franchisor licenses to use their trademark. Plus, the business format franchisee gets access to their entire system. That means the right and obligation to use the franchisor’s standards and system, and it is more than just the franchisor’s trademark. Other things are often included like initial and ongoing training.
Another bonus, the franchise focuses on selling the parent company’s services and products.
Why You Should Begin an Investment Franchise Business
Are you looking at investment and capital gain? This type of franchise unit is used to produce returns on investments. Think of large restaurants and hotels. You should invest in one of these if you can provide a management team and the money. This is for people who want to see an ROI without a lot of personal involvement. Examples include larger restaurants and bigger hotels like the Holiday Inn Express.
Why You Should Start a Conversion Franchise Business
If you’re an existing company looking to experience very rapid growth, these franchise businesses are best. You’ll use the advertising, marketing and trademarks for the parent company. Conversion franchising is good if you’re looking to use an existing manufacturing process.
What Is the Best Type of Franchise?
There are different options when you’re looking at the different types of franchising. But a business format franchisor who owns one of those businesses is at the top. There are opportunities in more than 70 industries. Like ones for real estate brokers who want to franchise in the same industry. Or maybe you’d like to start an Anytime Fitness franchise? Today, there are 4,000 locations across the world.
Some people prefer what’s called a job franchise. Those are the ones where you can do them individually. Keep in mind there is an ongoing royalty fee income payment. This can be a percentage of gross profits, sales, or a flat rate.
Food and Beverage companies do well. Get in with big players like Mcdonald’s and you’ll get the benefit of their entire system. Maybe a small franchised business is more appealing? Then why not start looking through the franchise brands at the International Franchise Association? Here’s the link.
Image: Depositphotos
This article, “Types of Franchises” was first published on Small Business Trends
